WEEKLY FAYRE – Monday, 2nd November 2020

November 2, 2020

When I have fears that I may cease to be

Before my pen has gleaned my teeming brain,

Before high-pilèd books, in charactery,

Hold like rich garners the full ripened grain;

When I behold, upon the night’s starred face,

Huge cloudy symbols of a high romance,

And think that I may never live to trace

Their shadows with the magic hand of chance;

And when I feel, fair creature of an hour,

That I shall never look upon thee more,

Never have relish in the faery power

Of unreflecting love—then on the shore

Of the wide world I stand alone, and think

Till love and fame to nothingness do sink.”

John Keats – poet – 1795-1821

 

As we enter a fresh month in ‘lockdown’, any cricketing acolytes not watching the IPL league in Dubai, please do so. It is tremendous entertainment and will help you get through the next week or so. Great performances from Kohli, Dhoni, Dhawan, Samson, Archer, Steve Smith, Stokes, Buttler, Curran, Pollard, Rashid and the mighty Gayle will lighten up your chasms of boredom – superb entertainment! 

 

INDEX

26thOctober ‘20

30thOctober ‘20

% Loss/Gain

FTSE

5860

5577

-4.83%

DAX

12303

11556

-6.07%

CAC40

4844

4594

-5.16%

DJIA

28185

26501

-5.97%

S&P 500

3441

3269

-4.13%

NASDAQ

11440

10911

-4.62%

SHANGHAI

3258

3224

-1.04%

HANG SENG

24773

24107

-2.69%

NIKKEI 225

23520

22977

-2.31%

ASX 200

6167

5927

-3.89%

 

This forthcoming week promises to be a tumultuous one! What will unfold? A new President of the USA – Jo Biden number 46? – probably, but I would not mortgage the house on a Biden victory. I feel the breath of the galloping Trump down my neck, but he will probably get mugged on the line! A Biden administration may not be good for business and therefore the Street of Dreams may not enjoy the best of times for a few weeks. If Biden gets a majority in the Senate and a $2 trillion stimulus package agreed by early January, that might help alleviate a degree of uncertainty. As far as the UK is concerned, Biden may play hard to get, having indicated that he intends to latch his chariot on to the back of the EU.

A temporary Covid19 ‘lockdown’ may be the order of the day in the US under Biden, as will to be the case in the UK, announced yesterday by PM Johnson, despite huge divisions in the Cabinet and even greater resistance amongst the business community. The damage that will be done to the world’s economy, if the US, EU, and UK ‘lockdown’ will surely be severe.  I think it is fair to say that investors have taken a substantial chunk of risk off the table in anticipation. It is interesting to note that the tech giants – Microsoft, Apple, and Amazon, off whom investors made such incredible and indecently unexpected gains from last March until September – have shed collectively about $510 billion in value from 13th October to 30th October 2020. Apple down 12.9% ((circa $200 billion), Amazon down 11.8% (circa $160 billion) and Microsoft – down 10% (circa $150 billion). Add some disappointing earnings and outlooks to Covid19 and the uncertainty surrounding the Presidential election, collectively they make for quite a toxic cocktail of insecurity.  In fairness Amazon and Apple posted huge numbers. However, in the case of Apple, market share in China for the iPhone had been surrendered. Amazon’s Covid19 costs at $4 billion did not please its acolytes. Facebook saw a 22% increase in revenue and Twitter disappointed with poor subscriber numbers. Its shares took a beating easing by 17%.

There was some encouraging economic news, especially from the US 3rd quarter GDP, bounced by 33.1% on an annualised basis. This was in line with expectations. However, much of this momentum is likely to be eroded by the spike in Covid-19, which could dilute the possibility of any meaningful growth in the 4th quarter.  Also, weekly jobless claims fell to 751,000 during the previous week. The reading exceeded the median economist estimate of 770,000. Growth rates in the EU were mixed with France recovering by 18.2% in the 3rd quarter, Germany by 8.2% and the EU by 12.1%. The ECB’S Mme Lagarde warned of difficulties lying ahead and other financial luminaries were concerned about the robustness of the European banking sector. Mme Lagarde needs to agree outstanding stimulus packages sooner rather than later. UK posts its 3rdquarter GDP next week. The estimate is +15%. Again, thanks to another ‘lockdown’, even though it is only for a month, most, if not all, of that recovery progress, will have been eroded. EU unemployment came in at 7.4% in August and the Euro area was higher at 8.1%.

In the UK the furlough period, utilised by 9 million people, terminated on Friday, will thankfully be extended for another month, at a massive cost of £100 billion. There is no doubt that the money tree has been shaken to its core!  Signs of anxiety over the health of the UK economy were crystallised by Panmure Gordon’s chief economist, Simon French who focused on “the first signs of the W-formation in unsecured UK consumer lending with a £600m contraction during September. This the first hard data signal that consumers are hunkering down for a difficult couple of quarters.” He also wrote an excellent article in Saturday’s Times – ‘Buck Up Britain – A Dose of Positivity Will Get the Country Moving Again!” However, I am not sure he bargained for another full ‘lockdown’, when he wrote the article!  The IMF further downgraded UK growth for 2020 from -9.8% to -10.4% and lowered its estimate for 2021 from +5.8% to -5.7%. There was a further discouraging nugget of news provided by the Freedom of Information Act. 1700 smaller firms intended to let 20% of their workforce go in September 2020.

UK car manufacturing output fell by -5.0% in September to 114,732 units – the lowest level for 25 years. Exports decline -9.7% to 87,533 units but account for more than three quarters of production.

As recorded above US equities took a tumble last week, with large techs leading the charge. It was also the murky outlook that rattled investors’ cage. Boeing served note to shed another 7000 jobs, which will bring its workforce down from 160,000 to 120,000. Punters looked at Pfizer’s earnings with a fine toothcomb, but though there was encouragement over vaccine progress, there was little to ‘light our fire’, as Jose Feliciano sang all those years ago! In concert with other titanic oil moguls Exxon Mobil’s and Chevron’s share prices dipped by 3% and 5% respectively over the past week, after downbeat earnings – down 54% and 51% in value year to date.

HSBC, Lloyds Banking Group and NatWest Group dominated the UK earnings season last week. They all had one issue in common – a dramatic drop in impairment charges for the previous quarter, though the overall provisions for the year remain substantial. It seems likely that HSBC will focus its attentions mainly on China and the Far East. Their profits were down 36% for the last quarter. Redundancy plans will continue to include the loss of 35,000 jobs over the next few years. Lloyds Banking posted a profit of £1 billion. The outstanding feature was a 22% increase in mortgage business and continued help for Government ‘bounce back loans.’ NatWest’s new CEO Alison Rose posted a rather parsimonious level of profitability - £355 million for the past quarter. Mortgage business was again solid, but in the case of all three banks, their earnings were uninspiring.

There is little doubt the 2008/9 credit crisis has taken its toll on the banking sector with the cost of capital having increased dramatically coupled with zero interest rates.  However, there has not been the slightest sign of imagination like getting involved in fund management from any of these three to diversify their earnings stream. UBS and Credit Suisse have successfully set out their stall in this profitable arena and though they will not be eclipsed, fund management would have been a decent ‘Arfur Daley for them.’ Deutsche Banks’s management keep making all the right noises, but progress is slow. Trading produced decent numbers for the last quarter, but the share price seems to be going nowhere and it probably will not, until its gargantuan derivative book is unwound. Deutsche’s share price in 2007 was €109; today it stands at €7.90, despite rights issues etc!

Though BP’s and Royal Dutch Shell’s numbers were better than expected, there was little content from their earnings to become inspired over. Its going to be a long haul for Messrs Looney and Van Buerden. BP’s shares are down 60% year to date and Shell are down 57%! At least Shell increased its dividend by 4%. GSK earnings again lacked inspiration, though progress with Sanofi Aventis and Clover Pharma in terms of vaccine development are exciting. GSK hopes to eventually provide 200 million vaccines. Jaguar Land Rover returned to profitability. BT Group will pool resources with Ericsson to provide 5G in the UK to the eventual exclusion of Huawei. However, its profit dropped a fifth, but the telecoms giant boosted its guidance. LVMH and Tiffany’s buried their difference and have agreed a price of $131 (down from $135) a share to be consideration for Tiffany’s to be taken over.

Jack Ma’s Ant’s dual listing is set to raise about $34.4 billion, split relatively evenly between Shanghai’s STAR Market and Hong Kong, topping Saudi Aramco’s $29.4 billion listing last December. Investors, both retail and institutional, are rushing to buy into Ant, which operates China’s biggest payments platform and other financial services, despite risks of greater scrutiny at home and abroad. The Shanghai leg of the IPO drew about 19 trillion yuan ($2.8 trillion) of bids from retail investors, or 872 times the number of shares earmarked for them, a company filing to the stock exchange showed on Thursday.

On Wednesday, M&S updates the market with its earnings. The pandemic will probably trigger a loss of £60 million for the quarter with like for like sales for clothing likely to be down by a horrendous 40%. IAG posted a loss of €1.3 billion for the last quarter and €3.2 billion for the past 9 months. Passenger capacity fell by 78.6% and redundancy costs to date totalled €275 million. The most telling comment made by the management was – “get your act together over testing!

The Sunday Times tells us that Mike Ashley is incandescent with rage having been frozen out of the auction for Debenhams. Hilco, run by Paul McGowan, is purported to be considering running some stores. The Hut seems to be out of the running for the on-line operation as does JD Sports for the whole operation. We also hear that on the back of Joe Wicks’ support, Gousto, a meal delivery operation run by Timo Boldt, may glean a £1 billion valuation, has doubled its monthly deliveries from 2.5 million to 5 million. It has 55 recipes, costing as little as 298p per portion in places.

 

UK companies posting interim results this week – Monday – Hiscox, AB Foods, Wednesday – Stobart Group, Smurfit Kappa, Autotrader, Wizz Air, Astra Zeneca, M&S, J Sainsbury, Tate & Lyle, Trainline, Thursday – Aveva, Biffa, Wincanton, RSA, Friday – Scottish Mortgage

US Companies posting interim results this week – Monday – Loews Corpn, Estee Lauder, Wednesday – Marathon Oil, Hyatt, Thursday – Alibaba, Bristol Myers Squibb, Cigna, Friday – Zimmer, Hershey, Coty, Revlon, Viacom, Marriott

Economic data to be posted this coming week – Monday – US Total vehicle sales, UK IHS Markit Manufacturing PMI, US HIS Markit Manufacturing, US ISM Manufacturing prices, US construction Spending, Tuesday – US Factory Orders, US Crude oil inventories, Wednesday – UK & EU IHS Markit Composite, US Balance of Trade, Imports & Exports, US MBA Mortgage Applications, US ADP Employment, US IHS PMI Composite, US ISM Non-Manufacturing orders,  Thursday – UK New Car sales, EU Retail Sales, BoE MPC Meeting, QE, Inflation Report & Andrew Bailey Speech, US Initial Jobless Claims, US FOMC, Friday – US Non-farm Payrolls (+510k), Unemployment rate (EST: 7.8%), Hourly earnings (EST: +0.1%)